Experience has proven that early intervention is critical in terms of maximising the options that are available to businesses and individuals under financial pressure. Our objective is to support clients and their advisors in addressing financial challenges by offering tailored solutions. Recognising the unique circumstances of each client, our approach involves gaining insights into specific issues and understanding the client’s financial position before providing expert advice on potential solutions.
Common issues that businesses tell us they are experiencing
- Cashflow/liquidity problems
- Reduction in profitability due to a drop in revenue or an increase in costs or a combination of both
- Trading losses
- Working capital challenges caused by rapid growth without being sufficiently capitalised
- Unpaid and overdue debts owed to creditors including the ATO
- Lack of access to funds or alternative finance
- Repayment arrangements with creditors
- Creditors initiating actions to recover debts
- Disputes either due to a breakdown in a relationship or with another party
What is insolvency?
Insolvency is characterised by the inability of a company or an individual to meet their financial obligations as they come due. Assessing the solvency or insolvency of a company or individual is not a straightforward task.
The Corporations Act provides that directors have a duty to prevent insolvent trading. Therefore, it is imperative for directors to demonstrate due diligence by regularly evaluating the financial status of the company they oversee. In the presence of insolvency indicators, directors should promptly take suitable action, such as seeking professional advice.
Indicators of insolvency include but are not limited to:
- Continuing trading losses;
- Overdue taxes;
- Paying creditors outside agreed terms;
- Implementing special arrangements with creditors;
- Payments to creditors of rounded sums which are not reconcilable to specific invoices;
- Suppliers placing the company on COD, or otherwise demanding special payments before resuming supply;
- Poor relationship with current financier, including inability to borrow further funds;
- No access to alternative finance;
- Inability to raise further equity capital;
- Threats of enforcement action or creditors commencing enforcement action to recover debts;
- Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts.
It is crucial not to ignore indicators of insolvency. Experience has proven that early intervention can significantly reduce the impact of an insolvency process.
